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Anadorko Petroleum must choose between two mutually exclusive oil-drilling projects, which each have a cost of $12 million. Under Plan A, all oil would be
Anadorko Petroleum must choose between two mutually exclusive oil-drilling projects, which each have a cost of $12 million. Under Plan A, all oil would be extracted in one year, producing a cash flow at t=1 of $15.0 million. Under Plan B, cash flows would be $2.1 million for 20 years. The firms WACC is 12%. At what rate the NPVs for these two plans the same? That is, what is the crossover rate where the two projects NPVs are equal?
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